COUNTRY REPORT Botswana At a glance: 2001-02 OVERVIEW Domestic politics will remain stable during the forecast period, with regional conflicts providing the main source of uncertainty. Economic policy will focus on attracting foreign investment to facilitate economic diversification and job creation. Expenditure on HIV/AIDS-related programmes will take up a greater proportion of government spending. Monetary policy will be kept tight, and, together with falling inflation in South Africa, this should help reduce average inflation from 7.4% in 2001 to 5.5% in 2002. After estimated real GDP growth of 6% in 2000/01, limited scope for further expansion in diamond production will restrain real GDP growth to 4.8% in 2001/02 and 5% in 2002/03. A drop in diamond exports will narrow the surplus on the current account to US$238m (4.1% of GDP) in 2001. A slight pick-up in diamond exports, together with an increase in current transfers, will lead the current-account surplus to widen to US$327m (5.3% of GDP) in 2002. Key changes from last month Political outlook • Botswana has strongly supported British attempts to increase pressure— through the Commonwealth—on President Robert Mugabe of Zimbabwe. All sides in the conflict in the Democratic Republic of Congo have accepted the mediation of a former Botswanan president, Quett Ketumile Masire, and this diplomatic activity is likely to enhance Botswana‘s international profile. Economic policy outlook • Economic policy will remain focused on encouraging foreign investment to accelerate economic diversification. Economic forecast • It is possible that a substantial increase in the amount that South African companies will be allowed to invest in other African states, without having to obtain foreign-exchange approval, may encourage the establishment of further manufacturing operations in Botswana. However, the EIU is not sufficiently convinced of this to change its manufacturing growth forecasts. March 2001 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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ISSN 1356-4021 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Botswana 1 Outlook for 2001-02 Political outlook Domestic politics Opposition to the ruling Botswana Democratic Party (BDP) will probably strengthen in 2001, with discontent already leading to a groundswell of support for the main opposition party, the Botswana National Front (BNF). However, although the BNF will try to capitalise politically on the BDP’s weakness, its own leadership struggle will come to the fore in 2001, when Kenneth Koma is expected to step down. It therefore seems unlikely that the BNF will be able to maintain its current political momentum into 2002, let alone until the next election in 2004. Continued high unemployment and growing resentment of foreign influence on the economy are just two of the issues on which people will unite. The BDP’s situation will not be helped by the likelihood of continuing internal disunity. The party’s old guard, spearheaded by the former minister and party chairman, Pontashego Kedikilwe, will keep a check on the party’s leaders, and particularly on the young vice-president, Ian Khama. President Festus Mogae, who remains on course for another term in office, is still trying to establish control of his party, but he will face major difficulties in trying to please the BDP old guard while also keeping Mr Khama in the fold. Mr Khama, a tribal chief and the eldest son of the country’s first president, Seretse Khama, commands a traditional following in the central region—seen as the heart of the BDP’s support base—and Mr Mogae will be unwilling to alienate this core of support. Mr Khama will campaign against the complacency and lethargy which characterise the civil service, putting him at odds with many in the cabinet, but if he does not achieve quickly the results and power he wants, he may leave formal politics. However, for the time being, Mr Mogae’s attempts to calm factional politics within his party may be working, especially as the party has been jerked out of its complacency by the unexpected strengthening of the BNF, in the form of a local council by-election victory and defections from other opposition parties (it is unlikely to go much further than this). The other small opposition parties will spend their time debating internal matters and plotting against one another. Recent statements suggest that opposition unity remains as elusive as ever. International relations Botswana’s main international concern will be regional instability. The most serious threats are posed by the deteriorating political situation in Zimbabwe and the possibility of destabilisation owing to an influx of Namibian and Angolan refugees from Namibia’s Caprivi strip. The government is sufficiently concerned about the situation in Zimbabwe to support British calls for a stronger stance against President Robert Mugabe. Although the direct economic impact on Botswana of a collapse in Zimbabwe would probably be limited to a decline in tourism and a possible influx of refugees, the negative implications for foreign investment and the pula would be more significant. Relations between Botswana and Namibia remain calm, but tension over their joint border may resurface. The issue of the extradition EIU Country Report March 2001 © The Economist Intelligence Unit Limited 2001 2 Botswana of Caprivi secessionists may cause some embarrassment, but so far Botswana has been sympathetic to its neighbour’s needs, even though it took in more refugees in early 2001. Botswana will continue to pursue a higher international profile; the mediation efforts of a former president, Quett Ketumile Masire, in the conflict in the Democratic Republic of Congo (DRC), may now prove to be more effective following the assassination of the DRC president, Laurent Kabila, in January. Economic policy outlook Policy trends Prudent economic policies will characterise the forecast period, with the central aim of accelerating economic diversification. The lacklustre privat- isation programme is set to move ahead, although some resistance may occur, and the government will continue its investor-friendly policies. Attempts to combat the high unemployment rate and the impact of HIV/AIDS will also be high on the policy agenda. Fiscal policy will continue to focus on improving expenditure control and increasing receipts, but is likely to have only limited success. Monetary policy will remain tight in order to control inflation. A recent public furore over unscrupulous foreign investors, who have taken advantage of Botswana’s investment incentives, is unlikely to have any impact on the government’s policies regarding foreign investment. Nor will the concerns raised by members of the Southern African Development Community (SADC) over the government’s generosity; the South African budget, unveiled in February, contains no additional competing tax concessions (although it does contain some new investment incentives). However, the Botswanan govern- ment will direct more help towards indigenous investors. Fiscal policy The budget for fiscal year 2000/01 (April-March) is expected to yield a healthy surplus; diamond earnings exceeded their projected level following strong sales in 2000. Nonetheless, overspending on the Eighth National Development Plan is pushing up total spending, as is reconstruction work after the floods of early 2000. Indeed, the cost of reconstruction, together with extra spending on HIV/AIDS-related matters, is responsible for the deficit of P527m (US$95m) projected in the 2001/02 budget. Historically, Botswana’s forecast deficits have usually turned into surpluses, but this is unlikely in 2001/02.